German Finance Minister Calls for Greater Credit Risk Retention

A paper presented by the German Social Democratic Party has proposed that financial institutions should be obliged to retain 20% of any credit risk associated with securitized products, according to market reports. This move is aimed at restoring confidence in the securitization markets.

The 20% retained amount is an alternative to the 5% proposed by the European Commission.

The paper, written by German Finance Minister Peer Steinbrueck and Foreign Minister Frank-Walter Steinmeier, also calls for a reduction in speculative transactions and wants banks acting as prime brokers for loans to hedge funds and private equity funds to keep a 40% capital reserve for such European loans. It also proposes the introduction of a 0.5% stock market trading tax.

This market tax could rise to 1.5% for clearing houses and certain financial products, would apply to trades worth 1 billion ($1.2 billion) or more, the ministers said, adding that they expect such a tax to generate up to 3 billion in Germany.

The move is aimed at "limiting speculative excesses and generating revenue to help alleviate the consequences of the current crisis," the paper said.

The paper also calls for greater transparency in short-selling and for an international ban on harmful short-selling.

Until such a ban is forthcoming, Germany should require short-selling to be reported, the paper said.

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